Be prepared for SMSF audits

Get ready for SMSF audits . . . ‘It is much simpler to make a disclosure upfront of any issues you know about, rather than have the tax office discover through the audit process,” says Brad Eppingstall of RSM Bird Cameron.
Photo: Louie Douvis

by
Alexandra Cain

The Australian Taxation Office has made it very clear that self-managed super fund compliance is its top priority.

An increasing number of super fund trustees can expect to hear from the ATO in the immediate term, regardless of whether the fund has breached the rules or not.

So what should you do if you receive notice your fund is going to be audited?

Kane Munro, general manager, superannuation with BPO Connect, which provides back-end and administrative services to accountants, says don’t panic, as it’s very likely the fund complies with the ATO rules.

“Remember that the ATO audits more than 1000 SMSFs each year to check they comply with income tax obligations, in addition to the 15,000 funds they audit for compliance with regulatory obligations. So you’re not on your own," Munro says.

Be honest and up front

“Honesty is definitely the best policy. Because if the ATO finds out that you are being deliberately dishonest it applies much harsher penalties to ­trustees," he says.

Munro says as a first step, you should call the SMSF auditor listed on your tax return and ask to discuss any issues they think may exist.

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“It’s also worth noting the ATO is also reviewing the auditor’s work."

According to Brad Eppingstall, a director with professional services firm RSM Bird Cameron, it’s essential to review your position early on matters the ATO raises.

“It is much simpler to make a disclosure upfront of any issues you know about, rather than have the tax office discover through the audit process," Eppingstall says.

“Early disclosure can also limit any penalties applied. If you genuinely believe there are no compliance breaches, provide the relevant information as swiftly as possible to the ATO to facilitate the audit."

Hamish Stuart is a partner at chartered accounting business iSUPER. He agrees the worst response you can have if you’re audited is to panic.

“There are a number of steps you need to take that will help navigate an ATO audit process. The most important thing is to remain calm," he says.

Contact your accountant

Stuart’s advice is to contact your accountant straight away. “He or she should be in the best position to assist you to answer any queries. The ATO will usually provide a time frame for your response, and you should always ensure that this is met," he advises.

If you are unable to meet the deadline, Stuart says make sure you contact the ATO up front to request more time.

“If the ATO has requested documents, gather all these and review them with your accountant. Providing all the documents will reduce the follow-up questions and shows openness by the trustee, which is something the ATO wants to see," he adds.

Have a frank discussion with your accountant to determine if there is in fact an issue.Says Stuart: “Sometimes a simple transaction will raise a red flag with the ATO that is easily explained. Addressing this may resolve the ATO’s concerns without the trustees and their advisers needing to undertake additional work and also incur costs to manage the audit."

It’s essential to be completely open during your initial review. Stuart says the ATO will happily consult with ­trustees who genuinely want to correct any inadvertent errors.

Have a plan

“If there is an issue, have a plan of rectification. The ATO always likes to see that trustees are being proactive." But always have your plan agreed with the ATO before you implement it, otherwise you may not solve the original problem and you may inadvertently create a new one."

So what process does an audit follow? Munro says the ATO will usually notify you via a letter that your SMSF has been selected for audit or review. Usually the process starts with a review. “The letter will include information about who you will be dealing with, what they intend to cover and how long they expect it to take. This letter will also include reference to the information and records the tax office needs to see to start the ­process," he explains.

From here you, your accountant and the SMSF auditor need to go into “hunter and gatherer" mode and provide all this information to the ATO.

Says Munro: “The ATO will then arrange an interview with you and your advisers to discuss any issues or further queries."

Finally the ATO will pass its judgment on your SMSF and automatically apply any penalties it deems fit. This can be anything from giving the fund the all-clear to non-compliance notices and large fines.

Trustees do have the right to appeal. But Munro says it’s very hard to have an ATO judgment overturned.

Remember, prevention is better than cure.

So talk to your advisers regularly to make sure your fund is meeting its compliance obligations.Ultimately it’s the trustees who are responsible for making sure the fund stays within the somewhat complex SMSF rules.